The SEBI headquarters in Mumbai. (Photographer: Santosh Verma/Bloomberg)

Here’s What SEBI Plans To Take Up At Its Board Meet On Sept. 18

The market regulator is expected to adopt suggestions to ease foreign fund ownership norms at its board meet on Sept. 18, two people with direct knowledge of the matter told BloombergQuint.

The board of Securities and Exchange board of India is also likely to adopt recommendations of various panels on issues raging from fair market conduct to making mutual fund investments cheaper, the people said said requesting anonymity.

The regulator had set up a panel led by HR Khan, former deputy governor of the Reserve Bank of India, to look into concerns stemming from SEBI’s April 10 circular barring non-resident Indians from either holding stake above a threshold or being in control of a fund.

Here are some of the suggestions that SEBI may adopt at its board meet, according to the people quoted earlier:

Relaxing Foreign Fund Ownership Rules

  • The Khan panel addressed most of the concerns of NRI fund managers, SEBI wholetime member G Mahalingam said. The recommendations, he said, if accepted in toto would address all the issues.
  • The panel in its report recommended lifting all restrictions that were imposed in the April 10 circular.

Also read: SEBI Panel Proposes To Relax Foreign Fund Ownership Rules

Making Market Cleaner

A panel, led by former Law Secretary TK Viswanathan, looking into fair market conduct suggested that SEBI should seek powers to intercept phone calls for better investigation.

  • The regulator will refer the recommendations made by the Viswanathan panel on intercepting phone records as a surveillance measure to the government.
  • Prohibition of Insider Trading Regulations to have two separate codes with minimum standards for listed companies and other persons who are required to handle unpublished price-sensitive information during their business operations such as market intermediaries, auditors.

Also read: Enough Safeguards To Ensure SEBI’s Power To Tap Calls Is Not Misused: TK Viswanathan

Enforcement Action In NSEL Brokers Probe

The NSEL, promoted by Financial Technologies, was ordered to stop trading after a probe found that it allowed trading against stock that didn’t exist in warehouses. NSEL had failed to settle Rs 5,600 crore worth of investor dues.

Based on an audit of accounts, SEBI probed five broking firms over their exposure: Anand Rathi Financial Services Ltd. (Rs 629 crore); India Infoline Commodities Pvt. Ltd (Rs 326 crore); Geofin Comtrade Ltd. (Rs 313.25 crore); Motilal Oswal (Rs 263 crore) and Phillip Commodities (Rs 140 crore).

“IIFL Commodities is examining the SEBI order. We will decide on the necessary course of action as may be advised by our lawyers,” an IIFL spokesperson told BloombergQuint in an email. Anand Rathi, Geofin Comtrade, Motilal Oswal and Phillip Commodities are yet to respond to BloombergQuint’s emailed queries seeking views on the SEBI order.

  • The regulator at its board meet may take up a status report on its probe against the brokers of National Spot Exchange.
  • According to SEBI’s investigations, five brokers allegedly mis-sold NSEL contracts.
  • In instances of Motilal Oswal and Philip Commodities, the regulator ruled on the jurisdictional and the so-called discrimination issue. The regulator dismissed the petition and will now move to adjudicate the role of these brokerages.

Also read: NSEL Scam: SEBI Rejects Questions Over Its Jurisdiction To Probe Commodity Brokers

Making Mutual Funds Cheaper

The market regulator wants the mutual fund industry to lower overall expenses for investors amid a debate whether India charges the highest fees in the world.

The Mutual Fund Advisory Committee met on Sept. 4 to submit its report to SEBI on reducing expenses. It has suggested the following methods:

  • Link expenses charged to investors to the fund’s performance.
  • Reduction in expense ratios as the asset under management of a scheme rises.
  • Introduce additional slabs for asset under management of more than Rs 1,000 crore.

Also read: SEBI Plans To Lower Mutual Fund Expenses

Expanding Consent

Widening the scope of the settlement mechanism to include fraud, introducing a time limit and allowing settlement with confidentiality are some of the key provisions suggested by the Justice AR Dave committee set up on Dec. 14, 2017. A settlement or consent mechanism allows entities to settle market infractions by paying a penalty without admitting or denying guilt.

  • Justice AR Dave committee on Aug. 13 recommended expanding the scope of consent. These recommendations may be passed.
  • It suggested cases of fraud, insider trading, misstatement in financial statements and front-running on a case-to-case basis as against the current blanket ban.

Also read: SEBI Panel Proposes Widening Of Consent Mechanism

Interoperability Among Clearing Corporation

SEBI is looking to put in place a framework for interoperability among clearing corporations. This will help reduce systemic risks, encourage innovation, facilitate competition, reduce post-trade costs and boost the risk management framework.

  • The market regulator is likely to approve recommendations by the KV Kamath panel on interoperability of capital markets.
  • SEBI’s Secondary Market Advisory Committee formed three sub-committees—risk management, technical issues and operational issues. The committees submitted their reports in June.
  • This comes after SEBI’s nod to the Multi Commodity Exchange to set up its own clearing corporation.

Also read: Low Securities Transaction Tax Driving Retail Investors To Options, Says SEBI